Diminishing marginal rate of technical substitution
(DMRTS) is a concept in economics and production theory that describes the diminishing rate at which one factor of production can be substituted for another while keeping output constant. In other words, as a firm increases the amount of one input (such as labor) while holding all other inputs constant, there is a point at which each additional unit of that input contributes less and less to output. This occurs because the input ratios are changing, and the marginal productivity of each input is diminishing.
The concept of DMRTS is important because it helps firms optimize their production processes by determining the most efficient allocation of inputs. Understanding the diminishing rate of substitution allows firms to achieve a balance between factors of production and avoid wasting resources by overspending on one input while neglecting others.
Overall, DMRTS is a key concept in production theory and helps firms make informed decisions about how to allocate their resources in order to maximize efficiency and output.